Thursday, January 29, 2009
EINs and LLCs: Updated
Subject: "Payee" Name on Checks that are Written to Me?
I am an LLC operating as a sole proprietor in CO. The IRS does not require an EIN for my situation, so I have never used one. I have always instructed clients to write checks to my company name. Twice in the past year two clients received letters from the IRS. I haven't seen the letters, so I don't know the exact context, but the bottom-line is that my clients believed that if I wanted to continue to receive checks with my company as Payee, then I would have to provide them with an EIN.
For tax purposes, the IRS site clearly states that an EIN is not necessary for an LLC operating as a sole proprietorship.
For legal purposes, it's my understanding that you should always receive checks in your company name. So, how should a check be written?
Additional Information that May Be Relevant I like "clean" tracking, so I deposit the checks into a business account from which I also pay business expenses. When I want to pay myself, then I transfer funds from my business account to my personal account.
An EIN has seemed unnecessary, and it's never been a problem until this year. I loathe the idea of adding yet more numbers to my life. Is it feasible to continue avoiding an EIN
Thank you in advance for your guidance!
P.S. I diligently searched your book (which I bought many years ago, and often refer to and recommend to others). Trust me, I'm not just flattering you; your book is great and I wonder when you will write an update. I also searched your blog. I'm confident that either (a) my question is not already answered on your blog, or (b) I don't know the right key words to use when searching the book's index or searching your site.
This is an update to an earlier post on EINs.
The IRS now says that an LLC must have its own EIN.
If at all possible get a copy of the letters your clients received from the IRS. You said the the clients "believe" they can't pay you unless you have an EIN. Well ... what's that really mean?
You are also correct that in order to maintain the protection of the LLC checks should be made out to the LLC. Whatever name your LLC is registered as, is the name the checks should be made out to. Be sure you have that name on invoices and business cards so that clients will have a reference.
If your clients plan to send you a 1099 at year-end they will also need your address and your EIN.
Thank you. I am so pleased that you use my book as a reference. That is what it is meant for! By he way, all the basic information and how-to instruction in Self-employed Tax Solutions, although written several years ago, still applies for 2008 tax returns and so far for 2009 as well. Specific numbers may have changed but method has not. For instance, although the per mile rate for auto deduction changes every year, or even every half year, the all-important simple method I explain for keeping mileage records and the deductions for auto expense have not changed.